US CGT Tax question please
#1
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US CGT Tax question please
This forum is so informative.....thanks to all who participate.
My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.
Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.
I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.
Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.
I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
#2
Re: US CGT Tax question please
You've pretty much got it right. .... Live in it for two years, or pay the tax.
Taxes aren't meant to be fair.
Is there some reason why the proceeds of the US home can't be used to buy the bungalow? Then sell the other home after they have "lived in it for two years"?
Taxes aren't meant to be fair.
Is there some reason why the proceeds of the US home can't be used to buy the bungalow? Then sell the other home after they have "lived in it for two years"?
Last edited by Pulaski; Feb 16th 2017 at 3:36 am.
#3
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Re: US CGT Tax question please
One other question please......if they bought the bungalow with US proceeds would they still have to live in the original house for 2 years to avoid US CGT? Then having 2 houses they'd be subject to UK CGT but I guess only on much smaller gain on the bungalow since it won't have appreciated too much in two years.
Thank you, TiaMaria
#4
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Re: US CGT Tax question please
Hi Pulaski, thank you for your very quick response and for clarifying my thoughts.
One other question please......if they bought the bungalow with US proceeds would they still have to live in the original house for 2 years to avoid US CGT? Then having 2 houses they'd be subject to UK CGT but I guess only on much smaller gain on the bungalow since it won't have appreciated too much in two years.
Thank you, TiaMaria
One other question please......if they bought the bungalow with US proceeds would they still have to live in the original house for 2 years to avoid US CGT? Then having 2 houses they'd be subject to UK CGT but I guess only on much smaller gain on the bungalow since it won't have appreciated too much in two years.
Thank you, TiaMaria
#5
Re: US CGT Tax question please
This forum is so informative.....thanks to all who participate.
My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.
Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.
I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.
Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.
I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
#6
Re: US CGT Tax question please
Hi,
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
* The big possible exception in this case is "periods when you were working overseas", but I don't know enough about the OP's situation to know if this might apply.
Last edited by Pulaski; Feb 16th 2017 at 2:58 pm.
#7
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Re: US CGT Tax question please
Hi,
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
#8
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Re: US CGT Tax question please
There is a flaw in this plan, and potentially a major one - under UK law you only avoid CGT on your home for the period you lived in it. There are some exceptions, so I would strongly recommend getting some advice from an experiencrd tax accountant in tbe UK, on which exceptions might apply*, but, generally speaking, if you own a house for 20 years, but only live it, or have other exceptions for 4 years then you will pay tax on 16/20 of the gain.
* The big possible exception in this case is "periods when you were working overseas", but I don't know enough about the OP's situation to know if this might apply.
* The big possible exception in this case is "periods when you were working overseas", but I don't know enough about the OP's situation to know if this might apply.
Thank you for pointing this time period out. I certainly agree a qualified/experienced tax accountant is necessary.
#9
Re: US CGT Tax question please
Other things to consider/ ask about, include indexation relief (the calculation can be complex, but takes general inflation out of the equation - e.g. house bought for £100k, sold for £200k, but inflation over the period is £20%, then only £80k would be potentially taxable), and also capital improvements i.e. home additions that added to the value of the home are included in the purchase price.
#10
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Re: US CGT Tax question please
So far as I understand the rules, I think that puts them squarely in the exception for "living overseas for work", but given the amount of tax at stake, getting professional advice on that is definitely the way to go.
Other things to consider/ ask about, include indexation relief (the calculation can be complex, but takes general inflation out of the equation - e.g. house bought for £100k, sold for £200k, but inflation over the period is £20%, then only £80k would be potentially taxable), and also capital improvements i.e. home additions that added to the value of the home are included in the purchase price.
Other things to consider/ ask about, include indexation relief (the calculation can be complex, but takes general inflation out of the equation - e.g. house bought for £100k, sold for £200k, but inflation over the period is £20%, then only £80k would be potentially taxable), and also capital improvements i.e. home additions that added to the value of the home are included in the purchase price.
Please can you explain to a dumbo (me), what you mean by "I think that puts them squarely in the exception for living overseas for work".
Thank you, TM
#11
Re: US CGT Tax question please
I think they will be deemed to have lived in the house for all the years they were living overseas, because it was "for work reasons", which is a specific exception to the "if you weren't living in it, you pay CGT" rule.
#12
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Re: US CGT Tax question please
I appreciate your wisdom of pointing out all the stuff from both countries which they need to consider for future tax implications. It is indeed a minefield and timing of the sale of US property, the move to UK and the sale of their UK property, as well as the purchase of a UK bungalow (if any funds are left over after all this tax!) will be of great importance given the two countries different tax years. TM
#13
Re: US CGT Tax question please
Yes, that's UK CGT. I brought it up after someone suggested expatriation and thereby excluding the impact of US taxes/CGT. NB expatriation may trigger a US tax bill.
#14
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Re: US CGT Tax question please
I believe expatriation is the way to go in the long run, but not immediately after returning . Maybe after 5 years though. But it depends on ones individual circumstances. However, it's not easy to do since I understand there are multiple questions asked at 2 interviews (read interrogations), and a large fee attached. Someone else I know who is a USC and living in Switzerland is in the process of renouncing and is having to pay the 'Exit Tax' since they have property in London as well as considerable assets.